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Income Tax Appellate Tribunal, “D” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
The appeal filed by the assessee is directed against the order dated 22.12.2010 passed by learned CIT(A)-2, Mumbai and it relates to A.Y. 2007-08.
The first issue urged in the appeal relates to disallowance u/s. 14A of the Act. The assessee has earned dividend income of Rs. 8,13,986/- during this year and claimed the same as exempt. The assessee did not make any disallowance u/s 14A of the Act. The Assessing Officer computed the disallowance as per Rule 8D of the Income Tax Rules and accordingly disallowed a sum of Rs. 2.95 crores. The Learned CIT(A) gave partial relief.
Learned counsel appearing for the assessee submitted that Hon'ble High Court of Bombay has held in the case of Godrej & Boyce Manufacturing Company Ltd. (328 ITR 81) that the provisions of Rule 8D shall be applicable from A.Y. 2008-09 onwards only and the disallowance u/s. 14A shall be made for earlier year on a reasonable basis. Learned Counsel submitted that the 2 M/s. Rallis India Ltd.
assessee has made investment of Rs. 31.72 crores and it is having own funds of Rs. 211.76 crores. Further the assessee has used proceeds realised on sale of land as well as collection from debtors for making investment in mutual funds during the instant year. Learned Counsel submitted that most of the shares held by the assessee are brought forward from earlier year and during the year under consideration it has made investment in mutual funds only. Accordingly he submitted that there is no requirement making any disallowance out of interest expenditure.
Learned AR further submitted that Hon'ble Bombay High Court has upheld the order passed by the Co-ordinate Bench in the case of Godrej Agrovet Ltd., wherein the Tribunal had held that disallowance of 2% of dividend income will meet the requirement of section 14A of the Act.
On the contrary, learned Departmental Representative placed strong reliance on the order passed by learned CIT(A).
We heard the parties on this issue. The assessee has demonstrated that own funds available with it is more than the investment made hence there is no requirement of making any disallowance out of interest expenditure. The view taken by the assessee is supported by the decision of Hon'ble High Court rendered in the case of CIT Vs. HDFC Bank Ltd. (366 ITR 505). Further the assessee has made fresh investment in two mutual funds and most of the shares have been brought forward from the earlier year. Under these set of facts, we are of the view that the disallowance u/s. 14A may be restricted to 2% of the dividend income earned by the assessee as held in the case of Godrej Agrovet Ltd. (ITA no. 934 of 2011 dated 8.1.2013) by Hon’ble Bombay High Court. The order of learned CIT(A) stands modified accordingly. We order accordingly.
Next issue relates to the addition made to the value of closing stock by invoking provisions of section 145A of the Act. We notice that the assessee had followed exclusive method for accounting the taxes, whereas the Assessing
3 M/s. Rallis India Ltd.
Officer added the tax and duties to the value of closing stock, without making adjustment to the value of purchases and sales. The contentions of the assessee are that, making adjustment to only the value of closing stock without making corresponding adjustments with the value of opening stock, purchases and sales would give distorted result. We agree with the said contentions. The Ld A.R invited our attention to page 14 of the paper book, wherein the assessee has prepared the profit and loss account both under exclusive method and inclusive method. Through this statement, the assessee has demonstrated that Net profit disclosed by the assessee remains the same under both methods. This statement shows that there would be no effect on the profit even if exclusive method is followed. We noticed that the Assessing Officer has not examined this statement put forth by the assessee. Accordingly, we are of the view that this issue requires fresh examination at the end of the Assessing Officer. Accordingly, we set aside the order of learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the statement of profit and loss prepared by the assessee both under exclusive and inclusive methods and on being satisfied, delete the addition made u/s. 145A of the Act.
Next issue is with regard to disallowance of corporate membership fees of Rs.7.00 lakhs paid by the assessee. This issue is covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of Samtel Colour Ltd. (326 ITR 425) and also by the decision of P&H High Court in the case of M/s. Groz Beckert Asia Ltd. (ITA No. 366 of 2008 dated 24.1.2013). Accordingly we set aside the order of learned CIT(A) on this issue and direct the Assessing Officer to delete this addition.
Next issue urged by the assessee relates to setting off of brought forward losses and unabsorbed depreciation. We direct the Assessing Officer to examine the contentions of the assessee and allow relief in accordance with law.
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In the result, appeal filed by the assessee is treated as allowed for statistical purposes.
Order has been pronounced in the Open Court on 25.5.2016.